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Jan 9, 2020 | Mortgages |

The Parts of a Mortgage Payment

Brought to you by FM Lending Services.

As interest rates go up (or down), a lot of attention is paid to the effect changing rates can have on the housing market. While interest rates play an important role in your monthly mortgage payment, they are not the only factor to consider.

If you’re planning to purchase a home, it is important to understand each of the components that make up a mortgage payment, which can help you determine a monthly payment with which you are comfortable.

Principal: The principal part of your monthly payment pays off the loan amount you initially borrowed to buy your home.

Interest: In return for providing the funds you need to buy a home, lenders charge monthly interest on the principal balance you owe.

Taxes: Property taxes may be collected by your lender on a monthly basis and held in an escrow account to be paid on your behalf as they come due. The good news is property taxes are usually fully deductible at income tax time. Consult a tax advisor for details.

Homeowners Insurance: Homeowners insurance provides financial protection in the event of losses that are the result of fire, wind, natural disasters or other hazards. Most mortgage lenders require you to have a homeowners insurance policy and may also collect these funds to hold in an escrow account to pay your insurance company.

Mortgage Insurance: Mortgage insurance protects the lender against financial loss if a customer fails to repay the loan.

  • FHA-insured loans require a mortgage insurance premium (MIP)
  • VA loans may require a funding fee
  • Conventional loans can be insured with private mortgage insurance (PMI)

If mortgage insurance is applicable to your loan, that part of your payment is forwarded to the agency providing the insurance.

If you have questions, our partners at FM Lending Services are always available to help you understand the home loan process. Please also check out their home-buying resources such as their mortgage payment calculators.